Amazon has all guns blazing for the Fire

But is it just another smartphone with ‘quirky little features’? Is it too expensive or just too late?

Seven years ago Apple launched the iPhone and forever altered the mobile landscape. It was the first device that successfully married the internet with mobility and was a shift in phone design and how content should be presented and accessed. Similarly, Amazon had become the catalyst for mass-market acceptance of online shopping.

Now Amazon is here with the Fire Phone – its first consumer mobile handset. With 2013 revenues of $74.5 billion (£43.6 billion), a market capitalisation of $149.5 billion and the best distribution channel, Amazon has the potential to be a major player in the mobile sector.

The Fire Phone will ship at the end of this month in the USA with a SIM-free price of $649 for a 32GB model and $749 for the 64GB model. It runs on a reduced version of Android and does not have access to the Google Play store. Yet Amazon’s own app store currently has around 240,000 apps available (a million less than Android) although there is no detailed analysis of the types of application available there.

The Fire has attempted a unique proposition by using four-front facing cameras to create 3D imaging on the screen. Amazon calls this Dynamic Perspective. It allows objects to appear as if they are underneath each other and it will show 3D versions of map points of interest. Aside from that, the screen (see box out) has about the same specs as similarly-priced devices such as the Samsung Galaxy S5 or the iPhone 5s.

Next-day delivery

Amazon has had huge success with its Kindle Fire tablet, which sold around 20 million units in 2013 (Forbes). Amazon won’t reveal the actual figures. The online retailer sold the tablet at cost and made money on sales of products through its website and its subscription services.

These include Amazon Prime, which offers video and music streaming as well next-day delivery on goods purchased through Amazon. Prime currently has 21 million subscribers globally and its £9.99-per-month cost is being bundled with the tablet.

For the smartphone market, Amazon has flipped that model on its head, with a high price for a phone with its specifications, which has surprised many mobile and Amazon analysts.

“Amazon has historically been very disruptive. The expectation from ourselves and many other people that I’ve spoken to in the industry is that they would have followed a similar approach to what they did with the Kindle Fire tablet,” said CCS Insight’s chief of research Ben Wood (pictured right).

“Amazon was saying it is not in the hardware business. The idea is to use these devices to engage customers. On that basis, the rest will follow, as they get more drawn into the Amazon world.

“Smartphones are with customers all the time. They spend more and consume with Amazon and they take more services like Amazon Fire. We were surprised they now have a phone which is almost the same cost as the iPhone, albeit with a slightly different memory configuration.”

Move the goalposts

While Wood has not yet seen the device in the flesh, he is unimpressed with it. He believes that Amazon may try a different distribution approach in terms of how it sells the device if it is released in the UK.

“You underestimate a company like Amazon at your peril,” he adds. “They may move the goalposts at some point. But it looks like they are going for a more traditional model for mobile phones to start with. Amazon doesn’t have a track record or brand in the smartphone space. The fact that it has the reduced open source version of Android puts them at a bit of a disadvantage compared with their rivals.

“In the US, it’s not unusual to pay $199 for the phone with a big tariff. In the UK, with £80 for an LTE phone on prepay, expectations are very different. It could be that they will use the UK market as a test bed for a slightly different approach.

“It doesn’t seem to have any defining characteristics that will cause consumers to rush out and buy this over another flagship device. I predict they will change the way in which the proposition is put together. We may either see a price move, or a tie-up with an operator that adds a new dimension. Without that, it is going to be a very tough sell.”

The decision to focus on 3D screens has puzzled many. LG’s attempt to introduce this technology to the smartphone industry with 2011’s Optimus 3D handset bombed. And in consumer electronics, 3D TVs have struggled to take hold. The BBC closed its 3D service last year after less than five per cent of the 1.5 million homes with a 3D television watched flagship events such as the Olympics opening ceremony on it.

New perspective

Some experts believe the cost of developing the 3D screen would have been better invested in producing a model which attacked the smartphone market from a new perspective.

“I imagine they’ve had to mess around to get the 3D material. In terms of build and material, that’s the main thing [cost],” said Ovum practice leader industry, communications and broadband Steven Hartley (pictured right). “There was all the talk of the business model and whether they will set up wholesale and retail departments. But it’s just a smartphone. I’m not sure what a vendor can do to bring out a smartphone with a ‘wow’ factor.

“It has quirky little features. But it would have been more exciting if it had been sold with bundled connectivity. That would have been something a little bit different. But it would be difficult for an operator to sign up for that. It’s just going to do what the Kindle Fire has done in a smaller box.”

Hartley said the Fire Phone has arrived too late to just offer the same as what has gone before it. Recent iterations of the iPhone, the Galaxy series or HTC’s flagships are about tweaks. By failing to offer innovation, the smartphone market is commoditising. He doubts whether there is room for another player that will grab market share at the high-end.

“We’re used to much razzmatazz, about ‘game changing’ and how vendors know what people want. It’s seven years since the iPhone launched and only now are we getting sub-£100 smartphones. Android ripped up the high-end-only mantra for smartphones with a democratised platform. Maybe if Amazon had got involved five years ago, people would have taken notice.”

The Fire Phone does have other aspects to its user interface, such as tilting to move between screens or read web pages. The consensus is this won’t have enough appeal to anyone outside of Amazon’s customer base. Canalys’ senior researcher Tim Coulling says the 3D functionality was about publicity and that a better screen would have been a better idea.

Driving revenue

“The screen sets it apart from competitor products. But I really question the usefulness of the 3D aspect. It’s gimmicky. Tilting the phone to scroll it will be useful for about five minutes. After that you’ll want to turn it off. They should have produced a screen with a better resolution. But they did need something to grab some headlines. Other than that, it’s just going to be an Amazon phone.

“It will sell. But the customers who will buy it are already locked into Amazon’s eco-system. In terms of market share I don’t think it’s going to set the market alight in the US. But for Amazon it’s not all about market share – it’s about driving more revenue.”

Amazon’s business is e-commerce. It is no surprise that it has been built into the hardware of the phone. Press the Firefly button and the phone will take in its surroundings and turn it into a virtual store. Around 100 million products are linked via the Amazon website. Take a picture of the product and the device goes straight to it on the Amazon store. It will also recognise what song is playing and bring the track up on Prime Music. Points of interest, such as paintings in art galleries, will also be recognised and the user will be taken to a web page with information on the product.

DC research director Francisco Jeronimo says this didn’t go far enough and that Amazon has missed an opportunity to rewrite the rule book on mobile shopping.

He says: “Amazon now has a too-expensive phone without a significant target market. The Firefly button will not radically change the way we shop on mobile phones. If we have an iPhone or Android, we can download the Amazon application and scan the barcode to buy from the Amazon application.

“What’s new with the Firefly button? You can track and take a picture of a product and find it online. That’s not enough.

“They could have done a lot more. Amazon brought a completely new shopping experience to consumers. The Fire Phone does not bring that innovative shopping experience.

“Unless they cut the price significantly, it’s hard to find the market segment for it. Unless you are loyal to the Amazon brand and the Kindle Fire, you are unlikely to buy this. The price is very high. The Kindle Fire sold because of an attractive price (circa-£100) and there were very interesting features. That’s not the case with the Fire Phone.

“Amazon is trying to target a market where Apple has a very strong brand and Samsung has a huge marketing budgeting to drive the volumes.”

Amazon faces a tough battle if it is to break into the smartphone market and the phone appears to be hamstrung by a relatively high price and average specifications. Despite all this, Amazon didn’t get to be one of the world’s biggest companies by accident, so don’t rule it out just yet.